Wednesday, February 9, 2022

Motorola v. Hytera: Why Might Government Bring a Criminal Trade Secrets Case After a Successful Civil One?

A federal indictment was unsealed yesterday in the Northern District of Illinois, charging Hytera, a Chinese maker of radio transceivers and radio systems, with conspiracy to commit theft of trade secrets under the Economic Espionage Act. The indictment alleges that Hytera conspired with former employees of Motorola, who were working for Motorola Malaysia at the time, to steal digital mobile radio (DMR) technology developed by Motorola.  The indictment brings criminal trade secrets claims under various provisions of 18 U.S.C. § 1832, including Sections 1832(a)(2) (copies, communicates, downloads, etc.), (a)(3) (possession), 1832(a)(4) (attempt), and 1832(a)(5) (conspiracy).

It is not necessarily uncommon for the government to bring a criminal case after a civil case.  Recall in the Waymo v. Uber case, the judge in the civil case actually referred the case to the US Attorney for investigation, and he did so very early in the case, a long time before the actual trial.  Sometimes the civil plaintiff can even lose or settle the civil case, and the government still brings the criminal case anyway. That happened to Anthony Levandowski in the Uber/Wayo dispute. He was indicted and convicted, even after the companies settled the civil case.  (Trump pardoned him).

But here, Motorola had a very big win in the civil case. The Illinois district court case (Judge Norgle presiding) was decided after a full jury trial. Motorola won a massive verdict of over $700M in damages, more than half of which were punitive. See Motorola Sols., Inc. v. Hytera Commc'ns Corp., 495 F. Supp. 3d 687, 695 (N.D. Ill. 2020). (This was thereafter reduced by ~ $200M).

One might think: "isn't that enough?" Why should the government bother to pursue a criminal claim now? I will not dwell here on the obvious political motive: "We think China is stealing US trade secrets and we need to make an example of them..." even if that is probably there.  I'll put that hot potato aside and instead highlight several practical reasons why the government might be getting involved after the victorious civil case.

First, as trade secret cases go, this was a pretty egregious one that seems to rise to the level of criminal intent.  See 18 USC § 1832 ("...intent to convert a trade secret... intending or knowing that the offense will injure [the trade secret owner]....steals...copies...possesses..." etc).   This was an all out reverse-engineering attempt that, in the end, was illegal, according to a civil jury. And there was a lot of evidence that this was exactly what Hytera was trying to do: copy US trade secrets abroad and re-sell products in the U.S. at a profit.  It is likely to seem really unfair to a lot of people that you can just copy a product abroad, using U.S based data and know-how, and then take advantage of the US market.  That should arguably trigger federal liability on both the civil and the criminal side, if anything should. 

Second, obviously, the remedies for a criminal claim are distinct and serious. They can include among other things, prison, hefty fines, including avoided costs, and often forfeiture of ill gotten profits. 18 U.S.C. § 1832 ("Any organization that commits any offense described in subsection (a) shall be fined not more than the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided."); 18 U.S. Code § 1834 ("Forfeiture, destruction, and restitution relating to this chapter shall be subject to section 2323, to the extent provided in that section, in addition to any other similar remedies provided by law.")

Third, the statute of limitations for this type of federal crime is longer, five versus three years, so the government can take into account acts going farther back in time. See 18 U.S.C. § 3282 (providing a 5–year statute of limitations). Note that in the civil case, Motorola successfully argued the discovery rule/fraudulent concealment doctrine to toll the SOL. Specifically, the jury found  Hytera had concealed the theft making it hard for Motorola to discover within the usual 3 years. Motorola Sols., Inc. v. Hytera Commc'ns Corp., 495 F. Supp. 3d 687, 700 (N.D. Ill. 2020)

Fourth, if there were weaknesses in the civil claim, the criminal claim can sometimes get around them. The reason is that attempt and conspiracy are available under 18 U.S.C. § 1832, which means even if there is in fact no trade secret, the government can still win by proving the requisite intent to convert and intent to injure were there.  The conspiracy claim can also potentially allow the government to reach more defendants.   Note, however, that as noted above the intent requirements in the criminal case are higher.  

Fifth, no matter how high the damages are, actually enforcing a U.S. court's judgment can be very difficult where a defendant like Hytera when its assets are located abroad. Judgments from a US court can easily be enforced in other US states, but when it can be really difficult to enforce a US court's judgment against a foreign company that keeps its assets abroad.  

Sixth, closely related, the overarching question of extraterritoriality is a very significant issue in a case like this, and by that I mean both the question of getting personal jurisdiction over a foreign defendant, and the bigger question of does US law even apply? Most of the acts by Hytera --hiring away Motorola employees; downloading documents from Motorola servers; using that information to make nearly identical DMRs -- occurred abroad. The employees were based at Motorola Malaysia. The civil federal statutes (DTSA) and the criminal federal statute (the EEA) share an extraterritoriality provision, 18 U.S.C  §1837, which permits application against foreign entities when there was "an act in furtherance" in the US.  But (as Rochelle Dreyfuss and Linda Silberman have discussed) there are reasons to be wary of stretching extraterritoriality in a civil case versus a criminal case. In the civil case, Motorola convinced the judge that there were US-based acts sufficient to trigger extraterritorial reach. Those acts were: acquiring information held on US servers and using that information to sell products embodying that information into the US market. My read is that the court based the "act in furtherance" on the latter (sale of products into US market), which was the only part that happened within the DTSA's effective date. See Motorola Sols., Inc. v. Hytera Commc'ns Corp., 436 F. Supp. 3d 1150, 1165 (N.D. Ill. 2020).   This case set a very important precedent on that point by holding that the "act in furtherance" of trade secret misappropriation that is needed to trigger extraterritorial application, could occur "ex post" at the point of use/disclosure in the form of sale of the products embodying the secrets  To the extent this was a stretch of the extraterritorial reach of U.S. civil law to reach a foreign entity whose main "bad acts" occurred abroad, perhaps a criminal case, where extraterritoriality is more traditionally accepted, adds a bit more heft. That is just a hypothesis.

No comments:

Post a Comment